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Free Cash Flow (FCF)
Valuation & Fundamentals
Operating cash flow minus capital expenditures.
It is the cash left after the company has spent what it needs to keep the business running and growing, available for dividends, buybacks, debt repayment or acquisitions. Because it is less affected by accounting choices than earnings, it is widely used in valuation.
Example
- 01Operating Cash Flow$8 billion
- 02Subtract Capital Expenditures-$3 billion
- 03Free Cash Flow$5 billion
A company with operating cash flow of $8 billion and capital expenditures of $3 billion has free cash flow of $5 billion.
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